I’m Agreeing with Nick Clegg


by Shariq
23rd December, 2008 at 10:51 am    

Unlike Sunny, I found a lot in Nick Clegg’s speech at Demos that I agreed with. I have some areas of disagreement with the Lib Dems but I think that Clegg lays out a more coherent case for a centre-left democracy than either New or Old Labour.

Take taxation. The present government has always obsessed with being revenue neutral. Rather than making a bargain with the public in which slightly higher taxes will lead to better public services, they have tried to have it both ways.

During the economic bubble, rather than taking action to regulate the financial services sector and reducing Britain’s dependency on it, they let it inflate so that the additional tax revenues would finance the increases in public spending.

Another example would be the use of the taxes on petrol. I agree with the government’s policy of implementing these taxes as I think that its essential that governments across the world wean consumers of inefficient petrol use. Unfortunately the revenue from this hasn’t been invested in improved road infrastructure or high speed rail links.

Education is another problem area. A skilled workforce doesn’t just mean having everyone to university. It also requires the government to increase educational standards in secondary school for people who don’t go on to university and and invest in a system providing vocational training.

I think Clegg is definitely right to distinguish between liberal and conservative capitalism. Championing the necessities of appropriate govt regulation is not libertarian or laissez-fairre economics by any stretch of the imagination. Although New Labour is hardly socialist, 3rd way thinking and and triangulation is not the same as governing from the centre-left.

The stuff about the innate goodness of people is guff but thats politics. After all, even Obama is in the business of peddling hope and constantly reminded America of how they were the greatest country and had great people and all that.

Do the Lib Dems have the grass roots capability of challenging at the next election – probably not. Would the left be better having only one party – quite possibly. You can diss the Lib Dem Party but right now people like Nick Clegg, Chris Huhne and Vince Cable have in my opinion the best ideas of how a centre-left country should operate in a 21st century global economy. Don’t ignore their ideas.

(P.S If the Conservatives do somehow get in power in the next election I hope that its in coalition with the Lib Dems and that Vince Cable rather than George Osborne is the next chancellor. David Cameron doesn’t seem too bad but Osborne seems to epitomise the Americanised, ‘market is always right’, more libertarian wing of the Conservative party)


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  1. bananabrain — on 23rd December, 2008 at 11:29 am  

    rather than taking action to regulate the financial services sector and reducing Britain’s dependency on it

    shariq,

    britain’s economy as a whole is now largely service-based. the financial services sector has been an enormous part of the growth that we have experienced since, well, the time of the thatcher governments. before that, we had “dependence” on such things as bloated, sclerotic manufacturers like british leyland. one of the things that new labour did was to try and stimulate growth in high-tech, which has met with some level of success. but would you characterise this as “increasing our dependence on the high-tech sector”? surely a more productive approach would be to consider financial services in terms of its contribution to national growth? if our growth is not to come from this sector, where is it going to come from?

    b’shalom

    bananabrain

  2. shariq — on 23rd December, 2008 at 12:53 pm  

    good points bananabrain. my point wasn’t to say that britain shouldn’t look for opportunities for growing its strength in service industries like the financial sector.

    however the problem was that rather than achieving this through a medium-long term strategy of increasing education and productivity, it was done by relaxing financial regulation.

    therefore unlike in say high-tech, a lot of the growth was illusory. unfortunately the bonuses and increasing inequality of both income and opportunity in the UK are not.

  3. bananabrain — on 23rd December, 2008 at 5:11 pm  

    a lot of the growth in high-tech was also illusory! but you can’t stimulate growth by removing people’s ability to enrich themselves through bonuses or otherwise. i know a bonus motivates the hell out of me a lot more than not getting one.

    b’shalom

    bananabrain

  4. shariq — on 23rd December, 2008 at 5:32 pm  

    bb, the point isn’t that bonuses are never merited. if you’re working on a big deal and get a cut, or genuinely add value to a company feel free to take a bonus.

    problems arise when people are essentially gambling huge sums of money so that they get their bonuses every year, safe in the knowledge that even if the house of cards comes crashing down they’ll still have made their money.

  5. shariq — on 23rd December, 2008 at 5:34 pm  

    bb, the point isn’t that bonuses are never merited. if you’re working on a big deal and get a cut, or genuinely add value to a company feel free to take a bonus.

    problems arise when people are essentially gambling huge sums of money so that they get their bonuses every year, safe in the knowledge that even if the house of cards comes crashing down they’ll still have made their money.

    a lot of people were willing to go along with increasing inequality and big bonuses because they thought those people were adding value to the economy. clearly not all the banking sector is culpable but its apparent that a lot of this growth wasn’t real.

  6. Rumbold — on 23rd December, 2008 at 8:53 pm  

    Bonuses in most lines of work have always struck me as fundamentally dishonest. You are paid to do a job, and you should do it to the best of your ability. If you require extra money on top of that to function properly, then you aren’t doing your job properly in the first place.

  7. Leon — on 23rd December, 2008 at 10:27 pm  

    My experience is everyone who never gets a bonus doesn’t like them. I’ve no problem if some one wants to pay me a phat wad of cash extra simply for being there.

  8. Don — on 23rd December, 2008 at 10:36 pm  

    Rumbold,

    Quite.

  9. douglas clark — on 23rd December, 2008 at 11:19 pm  

    Rumbold @ 6,

    I am not against incentivisation. I just don’t think it should apply to fly boys, where it seems to invariably stick. The dosh, I mean.

    The sub prime triple salsa with back pike that these little escaping spawn have achieved is perhaps unique in nature.

    They caused the toxic debt wasteland we now inhabit and we do not prosecute, we do not seem to frankly care that the fly boys have got away with it. Nor their spawn.

    Fly boys would be a fair enough synonym for bankers which is obviously Cockney rhyming slang for wankers.

    It is frankly time to take these folk down. Strip them of their money and their liberties.

    And that sir, fits better into a libertarian agenda than brain dead Devils Kitchen, or you.

    Lets’ have a bit of anarchy, if we know what it means.

    “Echo”, “echo”, V for Vendetta.

    Which is an attractive, oh you have no idea how attractive, alternative to us sorting it out.

  10. Thomas — on 24th December, 2008 at 12:03 am  

    I find the UK vs US theories of taxation to be an interesting juxtaposition. The US goes to great lengths not to tax corporations. This is especially true of conservative administrations. The thought being that taxation of producers will cause job loss and inflation.

    Right now there’s a tiff in the US about the Fair Tax, a national sales tax of more than 20% that would replace income and corporate taxes and which is anything but what it’s name implies.

  11. Rumbold — on 24th December, 2008 at 10:00 am  

    Leon:

    “My experience is everyone who never gets a bonus doesn’t like them. I’ve no problem if some one wants to pay me a phat wad of cash extra simply for being there.”

    If people want to give me extra money then that is their business. But it misses the point of the salary in the first place. I have never been in a job that had a bonus scheme, and everyone simply did the job required.

    Douglas:

    “And that sir, fits better into a libertarian agenda than brain dead Devils Kitchen, or you.

    Lets’ have a bit of anarchy, if we know what it means.

    “Echo”, “echo”, V for Vendetta.

    Which is an attractive, oh you have no idea how attractive, alternative to us sorting it out.”

    Interesting- Devil’s Kitchen is also a great fan of ‘V for Vendetta’. Great minds think alike eh? It is interesting about the financial crisis though. Gordon Brown massively increased spending on regulators after 1997, while passing hundreds of new laws. None of this worked, so people blame the crisis on the free market and demand more regulation.

  12. bananabrain — on 24th December, 2008 at 10:01 am  

    problems arise when people are essentially gambling huge sums of money so that they get their bonuses every year, safe in the knowledge that even if the house of cards comes crashing down they’ll still have made their money.

    but much of business depends upon the willingness to take risk. as we can see at the moment, banks see it as too much of a risk to lend, so there’s no liquidity in the system. this isn’t a bonus problem, it’s a risk management problem. the bonus problem is in what is known as “perverse incentives”, or, in management-speak, “what gets measured gets done”. if your bonus depends upon your increasing the size of your lending portfolio by 10-15% p.a., that is what you will aim to do. if it was paid after three or four years and paid as, say, options, or was dependent in some way upon the long-term performance of the company you were lending to, your behaviour would be incentivised entirely differently. it’s the same as green stuff; as long as green options are essentially financially penalised (i.e. no tax breaks) it will always be cheaper to be non-green and the bottom line will nearly always trump, *even though* in the long term it will be expensive. that is what i’m talking about.

    a lot of people were willing to go along with increasing inequality and big bonuses because they thought those people were adding value to the economy.

    a banker on £500k could be paying, say, £100k in tax, NI, etc, there’s also the amount s/he contributes by *spending money* (also, incidentally, my argument for making drug dealers contribute to the economy by legalising the stuff). i don’t see how it isn’t adding value to the economy. the mistake you guys are making is understanding the difference betwen whether the money is being added to the P&L, where it can be measured in terms of tangible cashflows, or to the balance sheet, where assets and liabilities are held at particular (and we now know, incorrect) values. this is basic economics and accountancy. a house is an asset. what it costs to live in the house is a cashflow. if the value of the asset is not really worth the cashflows associated with it then that is, essentially, what a bubble is.

    Bonuses in most lines of work have always struck me as fundamentally dishonest. You are paid to do a job, and you should do it to the best of your ability. If you require extra money on top of that to function properly, then you aren’t doing your job properly in the first place.

    rumbold, i’m surprised at you! the trouble is really this, that people see a bonus as, well, a bonus. it isn’t. it’s part of your benefits package, the reward for doing your job to the best of your ability. the bonus is simply the bit of your reward that is performance-related, so if you don’t perform, you don’t get as good a reward package. it is not “extra money on top of that to function properly”. shame on your conservative credentials. perhaps the problem is that people see it that way; what a bonus really is is a measure of how risky your job is.

    honestly, some of the points of view displayed in relation to basic economic issues on this thread make me think that nobody’s learned anything at all from either thatcherism or new labour!

    b’shalom

    bananabrain

  13. Rumbold — on 24th December, 2008 at 10:16 am  

    Bananabrain:

    Perhaps in theory. But bonuses now seem to be part and parcel of an annual salary. If bonuses are to be giveen, they should be for something amazing, something far beyond the standard expected. A bonus, in other words. It simply shouldn’t come up with the rations. Look at the City. Bonuses are estimated to have only fallen 25% on last year, and 15% on the year before. This in a year where the stockmarket has lost a third of its value, the banks have had to go cap in hand to the taxpayer:

    http://news.hereisthecity.com/news/business_news/8076.cntns

    Why is anyway apart from the odd person getting a bonus at all?

  14. douglas clark — on 24th December, 2008 at 10:24 am  

    bananabrain,

    I have no problem, in principle, with folk gambling with their own money. I do have a problem with greedy bankers gambling with my money. And I have a major issue with a system corrupted with, as you say, grossly short term incentivisation targets.

    If you think that is unreasonable, why not give me a million bucks of your own money and let me play with it? I will obviously give you (worthless) guarantees that I am a responsible adult and not simply a chancer. I might even treat you to lunch in a very good restaurant.

    It would be your greed or stupidity or my remarkable ability to con you, that makes this sort of Ponzi scheme a possibility. Or, given a better con artist than me, an inevitability.

    Incentivising folk to be corrupt, which is what the current bonus system actually does, is to institutionalise wrong. I think South Georgia sounds like a suitable location for most of the BoD of our major financial institutions. They can poop scoop behind penguins.

    Which is, probably a more worthwhile activity.

  15. douglas clark — on 24th December, 2008 at 10:42 am  

    Rumbold,

    Heh.

    Of course I’m a huge fan of V for Vendetta. Aren’t you? Alan Moore is my hero. Most thought provoking writer in the English language or summat!

    Anyway.

    Do you think I should advertise my tulips on e-Bay? We could have pretend bids up to hundreds of thousands of pounds until some poor sucker thought there was true value in them and made a real bid.

    This is probably – tongue in cheek – a less corrupt proposal than the incentivisation packages that bankers have had handed to them.

  16. persephone — on 24th December, 2008 at 12:08 pm  

    ” During the economic bubble, rather than taking action to regulate the financial services sector”

    They did with the creation of the FSA (financial services authority) during the aforementioned economic bubble

  17. Jai — on 24th December, 2008 at 12:43 pm  

    I don’t know about you guys but I’d love to hear what Chris Rock would have to say about the credit crunch and (most of all) about the behaviour of the bankers behind all this. I wouldn’t be surprised if he makes some very pertinent points about the matter during his next stand-up gig tour.

    ********************

    On a much more serious note, apparently a French guy at a financial firm in Manhattan has been found to have committed suicide at his desk by slitting both his wrists — he lost $2 billion due to Madoff’s fraud. The fallout from corrupt practices in the investment banking sector continues.

  18. Amrit — on 24th December, 2008 at 12:51 pm  

    ‘Education is another problem area. A skilled workforce doesn’t just mean having everyone to university. It also requires the government to increase educational standards in secondary school for people who don’t go on to university and and invest in a system providing vocational training.’

    AAAAAAAAMEN! We have this really stupid situation now where, because everyone feels like they have to have a degree for EVERYTHING, employers are getting annoyed because they find that graduates don’t have enough commercial awareness. It seems as though instead of going ‘Hang on, let’s stop trying to send everyone to university and recognise that there are other ways to get on in the world,’ it now seems to be becoming the case that you have to have a Master’s to advance. Ffs, in some fields, that’s good.

    Some things should NOT be degree subjects though, I’m sorry. Turn them into vocational courses or whatever, but NOT uni degrees (I’m looking at you, Business Management!). Graagh, a blog post will no doubt be on its way soon.

  19. bananabrain — on 24th December, 2008 at 2:24 pm  

    But bonuses now seem to be part and parcel of an annual salary. If bonuses are to be giveen, they should be for something amazing, something far beyond the standard expected.

    well, bonuses *are* part and parcel of your annual reward, like it or not. most bonuses i’ve ever had were split into bits, one bit conditional on the performance of the company as a whole (everyone doing the best they could) and the other bit conditional on my personal performance, assessed exhaustively by means of interminable and annoying questionnaires. that’s because what i do is hard to measure, although it directly impacts on value-creation. for someone like me it is much more important to have a performance-related bonus because otherwise it would be easier to beaver away anonymously. if i’m not rewarded, i won’t be measured and if i’m not measured, i won’t be effective. people in other jobs have more tangible measures like sales targets, productivity targets and the like. the problem arises when the salesman’s target is effectively to increase the size of the liability on the company’s books, which is what happened. the sort of bonus common in most jobs that i know of is around the 10% mark; it’s enough to motivate you but not enough to force you to take extreme risks. the difference in the city is that your basic salary is a far smaller proportion of your rewards package, which means you are effectively being rewarded depending on your ability to successfully manage risk – that is why bonuses are so jealously guarded; the culture is entirely different and, sometimes, you can get none at all. the issue here is that in certain jobs, it’s all about the bonus and not about the good day’s work. what’s the point if you can just feck off after bonus payout day and go to the next job? *that* is the problem, it’s the specific application of bonus culture, not bonuses per se. call it “performance-related pay” if you would prefer.

    I have no problem, in principle, with folk gambling with their own money. I do have a problem with greedy bankers gambling with my money.

    do you have a pension, douglas? any investments? any savings? where do you expect the return on those things to come from? it always says in the small print “value may go down as well as up”. you are taking a gamble that the financial managers concerned know what they are doing, can be trusted and can, moreover, outperform the market. the latter is not always possible even when the first two are fine. all value creation is the result of exchange. one person gets something which he values more than what he exchanged it for. the difference is value created. we can all see where the problem comes from in the case of house price bubbles and CDOs, which is that ALL the value created is intangible because no intrinsic value has been added to the assets concerned. if you are serious about gambling with your own money then you should really become a day trader. either it’s a skill or it isn’t. but to reduce it to “greedy bankers gambling with my money” is simply not helpful. i am not arguing that this hasn’t taken place on a massive scale, but that it is no reason to think the system is wrong – only the controls and regulatory regime. there you will get no argument from me.

    If you think that is unreasonable, why not give me a million bucks of your own money and let me play with it? I will obviously give you (worthless) guarantees that I am a responsible adult and not simply a chancer. I might even treat you to lunch in a very good restaurant.

    you could apply the same criteria to simon cowell or alan sugar or richard branson – they create goods and services. some are tangible, some not. as we know, intangible assets are more risky and therefore have more reward associated with them, too.

    b’shalom

    bananabrain

  20. Rumbold — on 24th December, 2008 at 2:38 pm  

    Douglas:

    “Of course I’m a huge fan of V for Vendetta. Aren’t you?”

    I haven’t seen the film yet, but I read the graphic novel recently, and it was really good.

    “Do you think I should advertise my tulips on e-Bay? We could have pretend bids up to hundreds of thousands of pounds until some poor sucker thought there was true value in them and made a real bid.”

    Very droll. But things are only worth what people are willing to pay for them. So if someone is willing to pay a million pounds for your three litre bottle of cider, then it is worth a million pounds.

    Bananabrain:

    But in the City the bonus system evidently contributed to a fundamentally-flawed model, that prized short-term profit against long-term stability. So on a practical level bonuses are suspect, and well as being wrong in a moral level (in my opinion). If you hired me to cut your hair (not that I cut hair), I would do the job after we had agreed a fee. I wouldn’t expect a bonus for not bloodying your head, or cutting your hair slightly faster- I would just work to the best of my abilities.

  21. douglas clark — on 24th December, 2008 at 4:46 pm  

    bananabrain,

    My arguement is simply that incentivisation – which you correctly identify as targetted only on what can be measured – is an internal process measured ultimately against profitability. It does not take account of what the retail customer of the products on offer actually wants. And, apparently, neither does it take account of capital security. Say what you like, but banks, esp Merchant Banks, were built to look like churches to Mammon for a reason, and banks’ more sober PR emphasises their sensible and worldly wise ability to negotiate risk. Quite clearly, this was (and is) a complete con.

    If the statement that financial institutions had to make, read:

    “the value of your assets may go both up and down, and by the way, we aren’t very good at what we do”

    then we might be nearer the truth.

  22. Sunny — on 25th December, 2008 at 1:44 am  

    shariq I don’t disagree with any of what you said. We’re on the same wavelength. And to that extent, these weren’t my main problems with Clegg.

    I was initially annoyed by the false socialism straw-man because that’s not how I see socialism. And then its a false comparison anyway since no one is really practicising socialism in this country.

    Some of the other stuff was just idealistic stuff, which would quickly fall apart in reality. I don’t see why being for proportionately progressive taxes, like a 50% top rate, is illiberal – even Adam Smith was all for it.

    It just didn’t do much for me… not to say the Libdems are less an attractive proposition than Labour or the Tories right now – because they actually stand closer to my position on many issues.

  23. shariq — on 25th December, 2008 at 6:19 pm  

    Interesting comment Sunny. I thought that the lib dems were still for a 50% wavelength in principle. I wonder if this is a strategic move or the new leadership is against it on principle.

    BB, are you seriously making the argument for trickle down economics. I’m in Pakistan right now and rich people here spend lots of money as well. This does create a certain amount of jobs but the economy is still terrible.

    The question is about increasing productivity and adding value to the economy. A lot of people thought that inequality wasn’t such a big problem because people in the city were adding value. It now turns out that a lot of it was just making money off a big bubble. We are now seeing the consequences which is why even people like Martin Wolf are arguing for an overhaul in how the financial sector is regulated.

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